Hospitalist Compensation per wRVU as a Proxy for Total Encounters.

If you are a soon to be hospitalist or a current hospitalist and you want to know if the contract you are providing your service under is on par monetarily with what the rest of the country is offering, you should understand what you are being offered in relationship to the following formula:

How do doctors get paid? It's a lot different than how hospitals get paid my Medicare. If you are a physician, you need to know what work RVU (wRVU) is and understand what these strange letters and numbers mean to your bottom line. They determine how you are going to get paid, whether you work for a hospital or whether you work for yourself. If you work for others, you need to know if they are treating you fairly or if they are taking advantage of you by paying you less than market rates.

If you don't understand RVU, read my post explaining RVU. Just as we tell our patients, if you want to make the right decision, you need to stay informed and learn all the E/M coding rules. The Happy Hospitalist is here to help. I have been a hospitalist for almost a decade and have a great working knowledge of how all this stuff works.

Most physicians who work in contract with a hospital as their employer have some form of productivity bonus built into their contract. Most hospitals will use the wRVU data to determine compensation and productivity bonus. If they aren't, they should. And even if they don't keep track, you should, and you should ask them for your data so you know whether your compensation matches up to that of others around you, either regionally or nationally. If they say they don't have that data, be very suspicious. RVU data is the standard which determines compensation from the Medicare National Bank and every organization that submits a bill to any third party has this data readily available.

So, how do you know if your compensation matches up with the compensation of other hospitalists around you? Not only should you know how much you are being paid, but also how much you are being paid in the context of how many patient encounters you are seeing.

I am constantly updating my post on hospitalist compensation. I previously purchased the 2010 survey and I recommend anyone who wants to know the state of hospitalist compensation in their part of the country to do the same. In addition, follow the links I have provided to Today's Hospitalist free website for their yearly hospitalist salary survey data. They both offer a wealth of information important to your practice.

The Hospitalist offers some excellent insight this year into the Total Compensation/wRVU formula above. I've been tracking a variation of that on myself for years with my own personal data that I import into my own customized spread sheet for analysis. In America's current fee-for-service practice and payment model, the more you work, the more revenue you generate and the more compensation you should receive. The formula above allows any hospitalist to understand what their compensation is, relative to how many patients they are seeing (using wRVU as a proxy) and allows them to compare themselves with hospitalists all over this country.

The formula is easy to calculate and easy to understand. If you see more patients, your wRVU should go up. If you are not getting paid more to see more patients, then your $/wRVU will go down. I'll put this in perspective for you, but you need to click on this link describing the compensation/wRVU graph across different hospitalist practice models and open it in another window for side by side comparison with the discussion that follows.

For the sake of discussion, let's say Hospitalist Group A pays $85,000 in salary + $15,000 in retirement contributions and no profit sharing. The average hospitalist in this group generates 2000 wRVU's per year. The total compensation seems light, but so does the wRVUs generated. Understanding compensation in the context of how many wRVUs these hospitalists are generating is paramount to knowing if you're getting a fair deal or not. Their total compensation/wRVU amounts to $50 per wRVU.

Let's says Hospitalist Group B pays $250,000 +$25,000 a year in retirement + $25,000 a year for profit sharing distributions under an S Corp physician tax benefit structure. In this group, the average physician generates 8,000 wRVUs per year. In my experience, that's a lot of wRVUs if all you are doing is evaluation and management codes all day long and have no practice built on non E/M procedural codes. In this practice the total compensation/wRVU amounts to $37.5 per wRVU.

Which group would you rather work for? Which one values you more? In the second group, you are producing 4x the wRVUs as the first group, but only earning 3X as much. Remember, it's important to view this stuff in context.

Clearly, the first group is going to pay you more per effort than the second group. Which group would you rather join? That depends on what you value. If you'd rather work harder for more money, but understand that your effort is being valued less, than you'll choose group B. Also, it is my understanding, in many groups, that the value of additional productive wRVUs declines as productivity increases. In other words, the first 4,000 wRVUs may be paid for at a higher rate than the second 4,000 wRVUs. Don't ask me why. They shouldn't.

If you review what The Hospitalist has provided at the two links above and you understand what your contract is providing you, than you can get an understanding of where you fall in relationship to other hospitalist groups across this country. That's important if youor your hospital wants to know if they are paying you the going market rate for the hospital/hospitalist subsidy in 2011 and beyond.

If any of this makes sense, you'll also understand by now, why some medical and surgical specialties make more money than other medical and surgical specialties. Different specialties are valued differently in compensation potential. Some folks says the subspecialties require additional training over the primary care specialties and there for they should get paid more. Some folks say they work longer hours and should therefore get paid more. Both answers are true. The question that should be answered, however, is how much more are they being valued on a time axis. The productivity potential is defined by the wRVU assigned to all the thousands of CPT® codes as defined by the RUC. The more productivity you can produce in the same defined period of time, the more money you're going to make.

There are two ways to increase compensation. Increase revenue and decrease costs. If you can generate more RVUs in the same defined time frame, you can increase your compensation without working more hours. That's how the economic game of medical practice is paid. But how does one do that?

See and bill for more patients in the same period of time by limiting one's practice to folks with milder illness and more rapid turnover.

Send out all the complicated (and uncomplicated) disease process to other physicians who will also get paid for their evaluation and management. This is triage medicine or the polyconsult mentality.

See and bill for more patients in the same period of time by hiring nurse practitioners or physician assistants which can be billed at 85%-100% of the physician payment, depending on whether certain criteria are met or not.

Perform and bill for CPT® codes that offer the highest wRVU value per unit of time.

Decrease overhead expenses. This is a whole consulting business in and of itself.

Set up IT or systems process that reduce the expense of physician time and delegate responsibility to others with a lower labor or technology cost.

Develop economies of scale and market share so one can demand better insurance contracts with higher payments. We already know that hospitals are busy buying up medical practices. The final end point of less competition through greater economies of scale will be higher prices. The airline industry has taught us that.

Ancillary services (lab, xray, medication administration, etc...)

Optimize charges per encounter through a thorough understanding E/M documentation at the bedside, among many others unlisted here.

If you understand how you are being compensated, you can understand when you are being treated fairly. You can also understand if your group is not up to par with those around you. Get educated. Know your hospitalist compensation per wRVU and take control of your practice.